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McCormick (MKC) Acquires Cholula to Boost Condiment Platform

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McCormick & Company, Incorporated (MKC - Free Report) completed the previously-announced acquisition of the parent company of Cholula Hot Sauce — a premium Mexico-based hot sauce brand. The company bought Cholula from L Catterton for $800 million, financed through a combination of cash on hand and commercial paper.

Notably, McCormick anticipates transaction and integration expenses to dilute earnings per share (EPS) in fiscal 2020 and 2021. Management expects the deal to have no impact on adjusted EPS during this time. Further, the company envisions the buyout to be accretive to adjusted EPS in 2021.

In a press release dated Nov 24, McCormick stated that Cholula's yearly net sales are nearly $96 million. The metric is anticipated to grow mid-to-high single digits in a normal environment after the coronavirus pandemic. Further, management believes that Cholula, which has an attractive margin profile, will be accretive to the Consumer and the Flavor Solutions segments (excluding transaction and integration costs).


 

The company had earlier stated that it plans to keep the Cholula brand name across its retail and foodservice channels. Cholula's portfolio consists of six unique flavors, which are made in Mexico with high-quality ingredients. Moreover, these offerings are based on a 100-year old recipe that contains distinctive blend of fresh peppers and local spices.

McCormick believes that the buyout of Cholula accelerates its growth potential across the condiment platform and widens the product portfolio in the hot sauce category. Markedly, hot sauce is a fast-growing category. Cholula, being an iconic and premium brand, is outperforming the category growth. Moreover, management expects to boost Cholula by improving category management and brand marketing. Also, the company anticipates the expansion of Cholula’s channel penetration. Apart from these, McCormick's extensive presence across all foodservice channels is likely to solidify Cholula's go-to-market model.

McCormick strengthened its spices and seasonings portfolio through prudent acquisitions in the past. Clearly, the company’s acquisition of Cholula is another step toward this direction. Notably, shares of this Zacks Rank #3 (Hold) company have increased 10.2% year to date against the industry’s decline of 0.2%.

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